south dakota department of revenue

STATE OF SOUTH DAKOTA

SUMMARY OF STATE SALES TAX

EXEMPTIONS

Andy Gerlach, Secretary of Revenue

January 2013

South Dakota Department of Revenue

445 E Capitol Avenue

Pierre, South Dakota 57501-3185

Phone: 605-773-3311

Fax: 605-773-6729

http://dor.sd.gov

January 2013

To members of the South Dakota Legislature:

The Department of Revenue created a report of existing sales tax exemptions and their

corresponding estimated fiscal effect for the Legislature’s Sales Tax Review Committee that met

during the summer of 2011. We have updated the report for 2013 and will continue to update as

new information becomes available.

The report represents the efforts of staff in the Department of Revenue, Business Tax Division,

using internal and external data.

The Department of Revenue hopes that you find the document to be a useful tool in the

formulation of public policy decisions. The Department’s staff in the Business Tax Division

stands ready to answer any questions you may have concerning the material in this document.

Sincerely,

Andy Gerlach

Secretary of Revenue

INTRODUCTION

South Dakota’s state and local governments rely on sales tax revenues to fund valuable services

to our citizens. Ensuring that our system of taxation is fair, equitable, and efficient is vital to our

economic success and quality of life. In setting tax policies, we must consider the need for taxes,

the taxpayers’ ability to pay, the impact of those policies on economic development, and the

interaction of tax policies with other policy goals.

Tax exemptions are an important component of South Dakota tax policies. However,

exemptions always come with a cost. Exemptions reduce revenues otherwise available for

programs, education, and other services for our citizens. Therefore it is critical that policymakers

understand both the costs of exemptions and their effectiveness at achieving their intended goal.

Highlights of the Report

The Summary of State Sales Tax Exemption is prepared by the South Dakota Department of

Revenue to provide information on our state’s tax policy. The report is organized by industry

type. It describes the various exemptions that are currently authorized and provides estimates of

the fiscal effects.

This estimated sales tax loss is based upon information from many sources which are cited

throughout the report. We acknowledge that some sources of information are more accurate than

others. All annotated estimates can be verified. All other estimates are based upon the best

information available. This document is made available to both government and non-

government organizations.

On a case by case basis, the estimates provide a valuable benchmark for discussion of whether

the policy justifications warrant the loss of revenue.

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Sales and Use Tax Exemptions Estimate of 4 % State Sales Taxes

Agriculture Group______________________________________________________ Estimated

4% State Tax Category Laws and Exemptions

$13,200,000 Parts & repairs to farm

machinery

10-45-3.4 Exemption of certain parts, repairs, or maintenance on agricultural or irrigation equipment.

NA Equipment

taxed under 10-46D

Farm Machinery

10-45-3.5 The sale, resale, or lease of farm machinery, attachment units, and irrigation equipment. (See 10-46E for excise tax of these products.)

$4,512,000 Services 10-45-12.1 Agricultural Services (SIC 07) , except : Veterinary Services (074) and Animal Specialty Services, except Veterinary (0752)

Not Available Warehousing 10-45-12.1 Farm Product Warehousing & Storage (SIC 4221)

$22,812 Seeds 10-45-15 Seed legumes, seed grasses, and seed grains sold in quantities of 25 pounds or more in a single sale to be used exclusively for agricultural purposes.

$44,868,000 Fertilizer & pesticides

10-45-16 Commercial fertilizer, either liquid or solid, when sold in quantities of five hundred pounds or more in a single sale to be used exclusively for agricultural purposes.

10-45-16.1, 10-46-17.5 Pesticides (Including insecticides, herbicides, pesticides, rodenticides, and fumigants) and products or substances used in conjunction with application of the pesticides used exclusively for agricultural purposes. (Sales tax applies to endoparasiticides and ectoparasiticides)

$20,000 Rental Devices to apply fertilizers

10-45-16.2, 10-45-16.3 Rental of devices primarily used to apply fertilizers, pesticides, herbicides, and insecticides for agricultural purposes if sales or use tax was paid on the original purchase of the device.

$120,990,000 Livestock 10-45-18, 10-46-16 Livestock, live poultry, ostriches, emus or rheas, is such sales are part of a series of transactions incident to producing a

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finished product intended to be offered for an ultimate retail sale.

10-45-18.2, 10-46-16.2 Live cattle, buffalo, sheep, goats, swine, pheasants, partridges, quail, poultry, ostriches, emus, rheas, and domesticated fur-bearing animals defined in chapter 40-35, used to be used as breeding or product stock, and horses and other animals with the family equidae. Poultry does not include any fowl other than domestic fowl kept and raised for the market or the production of eggs for human consumption.

$20,416,000 Feed 10-45-18.3 Feed for cattle, buffalo, sheep, goats, swine, poultry, ostriches, emus, rheas and domesticated fur-bearing animals defined in chapter 40-35, if such feed is used by farmers or ranchers who are regularly engaged in the business of raising and feeding such animals, or producing milk for sale for human consumption, and horses and other animals with the family equidae. Poultry does not include any fowl other than domestic fowl kept and raised for the market or the production of eggs for human consumption.

$20,000 Nondomestic animals

10-45-18.4, 10-46-16.4 Live nondomestic animal regulated by the animal industry board pursuant to 40-3-26 if the animal is to be used by a farmer or rancher who is regularly engaged in the breeding and raising of such animals.

$5,000 Feed for nondomestic

animals

10-45-18.5, 10-46-16.5 Feed for nondomestic animals exempted in 10-45-18.4

$150,000 Semen 10-45-18.6, 10-46-16.6 The sale of swine or cattle semen used for agricultural purposes.

$17,188,000 Fuel 10-45-19, 10-46-17 Motor fuel, including kerosene, tractor fuel, liquefied petroleum gas, natural and artificial gas, diesel fuels and distillate, when used for agricultural purposes. Agricultural purposes include hay grinding, but does not include the lighting or heating of any farm residence.

$20,000 Electricity 10-45-19.1, 10-46-17.2 Electricity used to power irrigation pumps and horsepower charge on electric motors powering irrigation pumps when the purchase is exclusively for agricultural purposes.

$250,000 Forestry Services

10-45-12.1 Forestry Services (SIC 085)

$250,000 International Sale of

10-45-93 Sale of agricultural and industrial production equipment in international commerce where physical delivery of the goods takes place

3

Agricultural or Production Equipment

in South Dakota if the property is to be shipped to a point outside the United States not to be returned to a point with the United States.

$221,911,812 Subtotal Tax estimate from USDA 2010 South Dakota Annual Report

Business Group________________________________________________________ Estimated


$7,000,000 Advertising Services

10-45-12.1 Exempts advertising services, which is the preparing and placement of ads. Exempts charges by media for placement of ad in that media.

$200,000 Displays or signage 10-45-1.6 Exempts gross receipts received by a retailer from a manufacturer, wholesaler, or distributor pursuant to a written contract that requires the retailer to display the manufacturer, wholesaler, or distributor’s product or signage in a specified manner or location. Discounts or deferred payment received by a retailer from a distributor, wholesaler, or manufacturer for purchasing a product for sale at retail does not constitute gross receipts subject to tax.

$25,000 Amateur sports officials

10-45-12.7 Any person officiating an amateur sporting event. However, this exemption does not apply to any person officiating any sporting event sponsored and operated by any elementary, secondary, or postsecondary school.

$750,000 Attorney/Accountant Reimbursable

expenses

10-45-29.1 Allows deduction from gross receipts charges to clients for tangible personal property or services purchased by the attorney or accountant on behalf of a client provided the purchase was not a resale purchase.

$100,000 Auctions Reimbursable

expenses

10-45-92 Deduction allowed from auctions gross receipts for expenses for tangible personal property or services purchased by the auctioneer for that client provided the purchase was not a resale purchase.

$32,000 Coins 10-45-110 Exempts coins, currency, or bullion.

$5,000 Commercial Hunting Operators

10-45-18.1, 10-46-16.1 Live game birds sold by the producer to nonprofit organizations which release such birds or to commercial hunting operators who charge fees to hunt such birds.

$500,000 Commissions 10-45-12.5, 10-46-9.5 Fees or commissions received for rendering a service which provides for the sale of tangible personal property or services.

10-45-84, 10-45-90 Fees or commissions received by a retailer for arranging a loan for a customer to pay for property sold by that retailer.

4

$1,000,000 Controlled Group 10-45-20.1 Payments made by one member of a controlled group to another member of a controlled group which represent an allocation, reimbursement, or charge for services provided by or rendered by the members of the controlled group. The exemption provided in this section does not apply to the lease of tangible personal property unless the sales or use tax has been paid on the property by the lessor.

10-45-20.2 Payments made by one member of a controlled group to another member of a controlled group which represent an allocation, reimbursement, or charge for third-party services rendered to the controlled group if sales or use tax was paid on that service. The exemption provided in this section does not apply to the lease of tangible personal property unless the sales or use tax has been paid on the property by the lessor.

$3,000,000 Credit Card Services

10-45-68, 10-46-56 Sale of credit card processing services to retailers.

$5,000 Credit Reporting Agencies

10-45-12.1 Consumer Credit Reporting Agencies and Mercantile Reporting Agencies

$200,000 Funeral Service Reimbursable

Expenses

10-45-5.2 Goods or services with money advanced as an accommodation are retail purchases and are not includable in gross receipts for funeral services and fees paid or donated for religious ceremonies are not includable in gross receipts for funeral services.

Horse and Dog Racing

42-7-89 Payments in 42-7 to be made by the licensee are in lieu of all other or further excise or occupational taxes to the state or any county, municipality or other political subdivision. Exempts purchases of products and services by horse and dog racing facilities, including off track betting facilities, from sales and use tax.

$150,000 Lawn Care Chemicals

10-45-5.5, 10-46-2.5 Chemicals purchased for use by Lawn & Garden Services

$2,000,000 Leased Personal Property

10-45-9.1 Personal Property sold for lease.

$250,000 Lodging Membership Fees

10-45-7.1, 10-46-68 Membership fees paid to lodging house or hotel membership organization operated for the benefit of its members.

$48,000,000 Lodging and Parking Sites

10-45-7 Lodging or campsites provided to any person for 28 or more consecutive days. Occasional rental of sleeping accommodations or camp sites, which is 10 or less days/year

$50,000 Mailing Service 10-45-94 Postage by a mailing service provided the cost of postage is itemized on the customer's bill and the cost of the postage is no

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greater than the cost of the postage to the mailing service.

$2,000,000 Membership Organizations

10-45-13.1 Membership fees to membership organizations and services provided by membership organizations (SIC 86).

$500,000 Motion Picture Rental

10-45-12.1 Motion picture rentals to a commercially operated theater primarily engaged in the exhibition of motion pictures.

$250,000.00 Professional Employer

Organizations

10-45-96 Deduction allowed for actual disbursements, including appropriate reserves, for the wages, salaries, payroll taxes, payroll deductions, workers' compensation costs, insurance premiums, welfare benefits, retirement benefits, and other employee benefits of its co-employees.

$250,000 Radio & Television Broadcasting

10-45-5.2 Radio & Television Broadcasting (SIC 483)

10-45-12.1 Radio & Television Broadcasting (SIC 483) (except cable and other pay for television)

$7,500,000 Replacement Parts 10-45-20.6, 10-46-9.6 Replacement parts sold to retailers that will be installed in tangible personal property that will ultimately be for resale.

$500,000 Research, development, and testing services

10-45-5.2 Research, development, and testing services (SIC 8733)

$25,000 Rodeo Stock & Services

10-45-90, 10-46-63 Services performed for rodeos by promoters, stock contractors, stock handlers, announcers, judges, and clowns

$50,000 Rural Water System 10-45-12.4 Services provided to a rural water system by a wholly owned cooperative or nonprofit corporation

$2,000,000 Sanitary Services 10-45-5.2 Sanitary services (SIC 495) except for the collection and disposal of solid waste -- specifically listed as subject to sales tax.

10-45-12.1 Sewerage Systems (SIC 4952)

$2,600,000 Water 10-45-12.1 Water Supply (SIC 4941)

10-45-5.2 Water Supply Systems Water Supply Systems distributing water for domestic, commercial, and industrial use. (SIC 494) Taxable: Does not include systems distributing water primarily for irrigation (4971).

$100,000 Shoppers' guides 10-45-14.2, 10-46-9.1 Ink and newsprint used to produce shoppers' guides

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$250,000 Telephone Company

10-45-5 Leases of tangible personal property between one telephone company and another telephone company.

10-45-6.1 (1) Any eight hundred or eight hundred type service unless the service both originates and terminates in this State of South Dakota;

(2) Any sale of a telecommunication service to a provider of telecommunication services, including access service, for use in providing any telecommunication service;

(3) Any sale of interstate telecommunication service provided to a call center that has been certified by the secretary of revenue to meet the criterion established in 10-45-6.3;

$0 Trading Stamps 10-45-12.1 Sale of trading stamps

$8,000,000 Warranty Goods and Services

10-45-11.1, 10-46-17.3 Goods and services furnished to meet warranty obligation.

$87,292,000 Subtotal

Manufacturing Group___________________________________________________ Estimated


$1,000,000 Fabrication Costs

10-46-5 Excludes the fabrication costs from the fair market value of tangible personal property fabricated by a contractor or subcontractor for use in his contract. The fair market value is subject to use tax.

$100,000 Packing Material

10-45-14.4, 10-46-9.3 Packing material used or consumed by manufacturers, processors, or fabricators as raw material.

10-45-14.5, 10-46-9.4 Packing material sold to retailers if the retailer used the article as wrappers or containers to hold other tangible personal property sold by the retail that is subject to sales or use tax and the articles are supplied free by the retailer as a convenience to the customer.

$500,000 Use Tax on Goods More Than 7 Years

Old

10-46-3 Tangible personal property not originally purchased for use in this state, but thereafter used, stored, or consumed in this state if the equipment is more than seven years old at the time it is brought into this state.

$1,600,000 Subtotal

7

Financial Group________________________________________________________ Estimated


$7,700,000 Insurance Commissions

10-45-12.1 Commissions earned or service fees paid by an insurance company to an agent or representative for the sale of a policy.

10-44-8 Insurance companies are exempt from all other taxes, except sales or use tax on tangible personal property and taxes on real property. Insurance companies do not owe use tax on the purchase of services, if the service provider does not collect the applicable sales tax.

$280,000 Financial Institutions

10-45-12.1 Financial services of institutions subject to the tax under Chapter 10-43 (Bank Franchise) including loan origination fees, late payment charges, nonsufficient fund check charges, stop payment charges, safe deposit box rent, exchange charges, commission on travelers checks, charges for administration of trusts, interest charges, and “points” charged on loans.


10-45-12.6, 10-46-6.2 Sale of credit services by credit bureaus to financial institutions that are paying bank franchise tax.

$1,000,000 Financial Institutions

10-45-20.5, 10-46-2.1 Services by a related corporation to a financial institution or services by a financial institution to a related corporation if they are part of a controlled group of corporations.


10-43-5 Bank franchise tax is paid in lieu of other taxes, except sales or use tax on tangible personal property. Financial institutions do not owe use tax on services, if the service provider does not collect the applicable sales tax.

$5,000 Revolving Loan Fund

10-45-13.5 Exempts receipts received by the state and political subdivisions from management services provided to a revolving loan fund operated by a nonprofit entity.

$1,000,000 Security or Commodity

Brokers

10-45-12.1 Commodity Contracts Brokers & Dealers

10-46-9.2 Brokers licensed under Title 47 (SIC 622)

10-45-12.1 Brokers, Dealers, and Flotation Companies (SIC 621)

10-45-12.1 Brokers and agents licensed under Title 47


8

Transportation Group___________________________________________________ Estimated


$7,500,000 Railroads 10-45-12.1 Railroad Transportation (SIC 40)

10-45-12.1 Rental of Railroad Cars (SIC 474)

$3,000,000 Transportation 10-45-12.1 Arrangement of Passenger Transportation (SIC 472)

10-45-12.1 Arrangement of Transportation of Freight & Cargo (SIC 473)

10-45-12.1 Local and Suburban Passenger Transportation (SIC 411) Except Limousine Services (4111 & 4119) - suburban7/1/95; Intrastate 7/1/96

10-45-12.1 Trucking and Courier services, except air (group no. 421) except collection and disposal of solid waste - 7/1/04

10-45-67, 10-46-55 Natural gas transportation by pipeline

10-45-12.1 Pipelines, except Natural Gas (SIC 46)

10-45-12.1 Transportation on Rivers & Canals (SIC 444)

10-45-12.1 School Buses (SIC 415)


Healthcare____________________________________________________________ Estimated


$120,000,000 Medical 10-45-12.1 Health Services (SIC 80)

10-45-14, 10-45-15 Purchases by nonprofit hospital

10-45-14.10 Drugs to the extent used by humans that are prescribed, dispenses, or administered by a physician, chiropractor, optometrist, dentist, podiatrist, or audiologist.

10-45-14.9 Insulin that is not sold by prescription.

10-45-14.11 Durable medical equipment, mobility enhancing equipment, and prosthetic devices used by humans when prescribed by prescription, dispensed, or administered for a specific patient by a physician, chiropractor, optometrist, dentist or podiatrist.

9

10-45-14.12 Medical devices used by humans when prescribed by prescription, dispensed, or administered for a specific patient by a physician, chiropractor, optometrist, dentist or podiatrist.

10-45-14.6 Hospital meals paid for by a public entity.

$120,000,000 Subtotal

Civic & Nonprofit Association Events & Admissions & Donations______________ Estimated


$100,000 Civic and Nonprofit

Association Events -

Admissions

10-45-13 There are specifically exempted from the provisions of this chapter and from the computation of the amount of tax imposed by it, the gross receipts from the following:

(1) Sales of tickets or admissions to the grounds and grandstand attractions of state, county, district, regional, and local fairs;

(2) Admissions to nonprofit historic sites and repertory theater performances operated by nonprofit organizations;

(3) Admissions to community operated celebrations and shows sponsored by a chamber of commerce or other similar nonprofit organization if the county or municipality in which the activity takes place officially sponsors the activity and no charge is made to the operators of the celebration or show for the use of county, city or town facilities or services;

(4) Admissions to events or receipts from activities sponsored and operated by colleges or vocational schools or elementary or high schools or related clubs or supporting organizations approved or supervised by a school or college when the entire net proceeds are spent for educational purposes and any associations of them and receipts from tangible personal property sold at such events. However, receipts from tangible personal property sold at such events or activities are included in the measure of sales tax at the time of purchase by the college or school or related club or supporting organization;

(5) Religious, benevolent, fraternal, youth association or charitable activities, including any bingo or lottery conducted pursuant to § 22-25-25, where the entire amount of such receipts after deducting all costs directly related to the conduct of such activities is expended for religious, benevolent, fraternal, youth association or charitable purposes, and, except for any bingo or lottery, the receipts are not the result of engaging in business for more than three consecutive days. However, receipts from tangible personal property or services purchased for use in the activity are included in the measure of sales tax;

(6) Sales of tangible personal property when the net receipts therefrom are used primarily for the restoration or maintenance of the Governor's mansion and capitol grounds;

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(7) Any charge or entry fee made to persons for engaging in participatory events limited to tournaments, contests and league activities. However, receipts from tangible personal property or services purchased for use in tournaments, contests and league activities shall be included in the measure of the tax imposed by this chapter;

(8) Admissions to events or receipts from activities sponsored and operated by county or municipal historical societies or centennial committees when the entire net proceeds are spent for centennial celebration purposes. However, receipts from tangible personal property or services purchased for use in the activity are included in the measure of sales tax;

(9) Religious, benevolent, fraternal, youth association or charitable activities conducted at county fairs, if the entire amount of such receipts after deducting all costs directly related to the conduct of such activities is expended for religious, benevolent, fraternal, youth association or charitable purposes, and the receipts are not the result of engaging in business for more than five consecutive days. However, receipts from tangible personal property or services purchased for use in the activity are included in the measure of sales tax;

(10) Admissions to circus performances sponsored or operated by religious, benevolent, fraternal or youth associations, if the entire amount of the receipts after deducting all costs directly related to the conduct of the circus performances is expended for religious, benevolent, fraternal, youth associations or charitable purposes.

(11) Admissions to events or receipts from activities sponsored and operated by religious, benevolent, or charitable organizations for a period not to exceed thirty days in any calendar year, if the entire amount of the receipts after deducting all costs directly related to the conduct of the event or activity is expended for the benefit of homeless persons.

$5,000 Donations 10-45-13.2, 10-46-15.4 Donations of tangible personal property or services given without charge to organizations exempt from sales tax.

$105,000 Subtotal

Educational Services____________________________________________________ Estimated


$20,000,000 Educational Services

10-45-12.1 Educational Services (SIC 82) Exempt schools: Continuing education programs, tutoring, and vocational counseling not including Rehabilitation counseling (See Social Services exemption for Rehabilitation counseling).


11

Prohibited from tax by Federal law 7CFR272.1_______________________________ Estimated


NA Cannot tax per Federal

Law 7CFR272.1

Food Stamps 10-45-14.7, 10-46-15.2 Authorized purchases made with food stamps.

10-45-14.8, 10-46-15.3 Authorized purchases of food made under Section 17(c) of the Child Nutrition Act of 1966 (42 U.S.C. 1786(c)) .

$0 Subtotal

Subject to tax/fees in another statute or chapter of the law____________________ Estimated


NA taxed under 10-47B

Fuel 10-45-11, 10-46-14 Gasoline, motor fuel, and special fuel subject to tax under chapters 10-47B.

NA taxed under 42-7B

Gaming 10-45-64, 10-46-52 Proceeds of gaming allowed by chapter 42-7B

NA Taxed under 32-3A

Boats 10-45-62, 10-46-51 Boats subject to tax under §32-3A-50

NA Lottery Tickets 10-45-13.3 Sale of lottery tickets.

$50,000 Coin Operated Washers &

Dryers

10-45-5.1, 10-45-5.6 Annual license fee is in lieu of sales tax on receipts.

NA taxed under 32-3

Mobile Homes and

Manufactured Homes

10-45-5 Rentals of mobile homes.

32-3 Mobile homes and manufactured homes (HUD certified) are subject to the 4% initial registration tax in lieu of sales, use and contractors’ excise tax. (10-45-2.1 and 10-46-5.1)

NA taxed under 32-5

Motor Vehicles 10-45-5 Leases of a motor vehicle as defined by § 32-5-1 under a single contract for more than 28 days.

10-45-11.2, 10-46-13.1 Gross receipts from sale of motor vehicle exempt from the motor vehicle excise tax pursuant to §32-5-1.

10-45-12.1 Rentals of motor vehicles as defined by §32-5-1 leased under a single contract for more than twenty-eight days.

$50,000 Subtotal

12

Government___________________________________________________________ Estimated


$100,000,000 Government, Tribes & Schools

10-45-10 Purchases by Federal Government, State Government, Public or Municipal Corporations, and Indian tribes.

Estimate includes purchases by Educational Institutions and 10-45-14 purchases by Religious or Private Educational Institutions.

$100,000,000 Subtotal

Social Services________________________________________________________ Estimated


$10,000,000 Social Services 10-45-12.1 Social Services (SIC 83)

10-45-12.1 Credit Counseling Services Provided by Individual & Family Social Services (SIC 8322)


Miscellaneous_________________________________________________________ Estimated


0 Freeport merchandise and stocks of merchandise

10-45-10.3 Freeport merchandise and stocks of merchandise brought as foreign merchandise into a foreign trade zone.

$25,000 Library Copying 10-45-13.4 Library copying charges.

NA Nonresident Purchases

10-46-8 Personal property brought into South Dakota for the personal use of nonresident.

NA Postage 10-46-65 Use of United States postage from use tax.

$25,000 Subtotal

$582,243,812 Total Total Estimated 4% Sales Tax

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